iPad Econ 101

Quarter after quarter, Apple’s earnings reports manage to smash the one previous. How Apple does this has everything to do with its relationship with Foxconn. A look at the practices of the Taiwanese electronics giant–specifically their 300,000-person Shenzhen compound–and a breakdown of where your money goes when you buy an Apple product sheds a little light on just how Apple’s sausage gets made.

Many are aware that Apple goes to great lengths to protect its hyped-up marketing campaigns, and that it has a good success rate when it comes to preventing information leaks about its products. This is, in part, because Foxconn workers contracted by Apple are locked into their factory compounds (like the one at Shenzhen) for weeks at a time before each product release. When they are allowed out, workers are patted down so as to make sure they’re not smuggling out any components.

As for the company’s profit margins, for every basic iPad sold at $499 Apple keeps $297 in profit, while most of the remaining $202 goes to paying Apple staff and shipping. Foxconn is paid $11.20 (or 2.3 percent of the price) for each unit. Only when you subtract the pay cut of all of Foxconn executives and engineers in Taiwan from $11.20 do you get the per-unit pay cut of the Chinese workers involved in physically making and assembling one iPad. And the answer is…pennies. Its a useful reminder that a magical and revolutionary product at an unbelievable price is, well, not so magical.